EXHIBIT 99.2
                                                                  ------------



                      CONSOLIDATED FINANCIAL STATEMENTS AND
                        AUDITORS' REPORT TO SHAREHOLDERS

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005



<PAGE>

REPORT OF THE INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS

TO THE UNITHOLDERS OF ARC ENERGY TRUST:

We have  audited the  consolidated  balance  sheets of ARC Energy  Trust as at
December  31,  2005 and 2004 and the  consolidated  statements  of income  and
accumulated  earnings and cash flows for the years then ended. These financial
statements   are  the   responsibility   of  the   Trust's   management.   Our
responsibility is to express an opinion on these financial statements based on
our audits.

We  conducted  our  audits in  accordance  with  Canadian  generally  accepted
auditing standards.  Those standards require that we plan and perform an audit
to obtain reasonable  assurance  whether the financial  statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial  statements.  An audit
also  includes  assessing  the  accounting  principles  used  and  significant
estimates  made by  management,  as well as evaluating  the overall  financial
statement presentation.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Trust as at December 31, 2005
and 2004 and the  results of its  operations  and its cash flows for the years
then  ended  in  accordance  with  Canadian  generally   accepted   accounting
principles.

The Trust is not required to have, nor were we engaged to perform, an audit of
its  internal   control  over   financial   reporting.   Our  audit   included
consideration  of internal  control  over  financial  reporting as a basis for
designing audit procedures that are appropriate in the circumstances,  but not
for the purpose of expressing an opinion on the  effectiveness  of the Trust's
internal  control over financial  reporting.  Accordingly,  we express no such
opinion.





/s/ DELOITTE & TOUCHE LLP
----------------------------
INDEPENDENT REGISTERED
CHARTERED ACCOUNTANTS

CALGARY, ALBERTA
FEBRUARY 3, 2006




<PAGE>

CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31 (Cdn$ thousands)                          2005           2004
-------------------------------------------------------------------------------
ASSETS
Current assets
   Cash and cash equivalents                         $        --    $     4,413
   Accounts receivable                                   122,956         72,881
   Prepaid expenses                                       14,020          9,878
   Commodity and foreign currency contracts (Note 9)       3,125         22,294
-------------------------------------------------------------------------------

                                                         140,101        109,466
Reclamation fund (Note 4)                                 23,491         21,294
Property, plant and equipment (Note 5)                 2,929,977      2,016,646
Goodwill                                                 157,592        157,592
-------------------------------------------------------------------------------

Total assets                                         $ 3,251,161    $ 2,304,998
-------------------------------------------------------------------------------


LIABILITIES
Current liabilities
   Accounts payable and accrued liabilities          $   148,587    $   103,572
   Cash distributions payable                             39,839         27,893
   Current portion of long term debt (Note 6)                 --          8,715
   Commodity and foreign currency contracts (Note 9)       7,167         26,336
-------------------------------------------------------------------------------

                                                         195,593        166,516
Long-term debt (Note 6)                                  526,636        211,834
Other long-term liabilities (Note 7)                      12,360          3,893
Asset retirement obligations (Note 8)                    165,053         73,001
Future income taxes (Note 10)                            515,877        300,406
-------------------------------------------------------------------------------

Total liabilities                                      1,415,519        755,650
-------------------------------------------------------------------------------


COMMITMENTS AND CONTINGENCIES (Note 18)

NON-CONTROLLING INTEREST
   Exchangeable shares (Note 12)                          37,494         35,967

UNITHOLDERS' EQUITY
   Unitholders' capital (Note 11)                      2,230,842      1,926,351
   Contributed surplus (Note 14)                           6,382          6,475
   Accumulated earnings                                1,235,742        878,807
   Accumulated cash distributions (Note 13)           (1,674,818)    (1,298,252)
-------------------------------------------------------------------------------

Total unitholders' equity                              1,798,148      1,513,381
-------------------------------------------------------------------------------

Total liabilities and unitholders' equity            $ 3,251,161    $ 2,304,998
-------------------------------------------------------------------------------


See accompanying notes to the consolidated financial statements.



/s/ Mac H. Van Wielingen                /s/ Fred Dyment
------------------------                -----------------------
MAC H. VAN WIELINGEN                    FRED DYMENT
DIRECTOR                                DIRECTOR


<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME AND ACCUMULATED EARNINGS
FOR THE YEARS ENDED DECEMBER 31 (Cdn$ thousands, except per unit amounts)      2005           2004
---------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>
REVENUES
   Oil, natural gas, and natural gas liquids                            $ 1,165,197    $   901,782
   Royalties                                                               (235,293)      (177,032)
---------------------------------------------------------------------------------------------------

                                                                            929,904        724,750
   Realized loss on commodity and foreign currency contracts (Note 9)       (87,558)       (86,909)
   Unrealized gain (loss) on commodity and foreign currency contracts            --            841
---------------------------------------------------------------------------------------------------

                                                                            842,346        638,682
---------------------------------------------------------------------------------------------------

EXPENSES
   Transportation                                                            14,289         14,798
   Operating                                                                142,240        139,716
   General and administrative                                                42,746         29,512
   Interest on long-term debt (Note 6)                                       16,946         13,320
   Depletion, depreciation and accretion (Notes 5 and 8)                    264,515        239,674
   Gain on foreign exchange (Note 17)                                        (6,412)       (20,713)
---------------------------------------------------------------------------------------------------

                                                                            474,324        416,307
---------------------------------------------------------------------------------------------------

Income before taxes                                                         368,022        222,375
Capital and other taxes                                                      (3,882)        (2,834)
Future income tax (expense) recovery (Note 10)                               (1,660)        26,100
---------------------------------------------------------------------------------------------------

Net income before non-controlling interest                                  362,480        245,641
Non-controlling interest (Note 12)                                           (5,545)        (3,951)
---------------------------------------------------------------------------------------------------

Net income                                                                  356,935        241,690
Accumulated earnings, beginning of year                                     878,807        637,117
---------------------------------------------------------------------------------------------------

Accumulated earnings, end of year                                       $ 1,235,742    $   878,807
---------------------------------------------------------------------------------------------------


Net income per unit (Note 16)
   Basic                                                                $      1.90    $      1.32
   Diluted                                                              $      1.88    $      1.31
---------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to the consolidated financial statements.

<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31 (Cdn$ thousands)                           2005         2004
---------------------------------------------------------------------------------------------
<S>                                                                   <C>          <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income after non-controlling interest                             $ 356,935    $ 241,690
   Add items not involving cash:
   Non-controlling interest                                               5,545        3,951
Future income tax expense (recovery)                                      1,660      (26,100)
Depletion, depreciation and accretion (Notes 5 and 8)                   264,515      239,674
   Non-cash gain on commodity and foreign currency contracts                 --         (841)
Non-cash gain on foreign exchange (Note 17)                              (6,359)     (18,427)
   Non-cash trust unit incentive compensation (Notes 14 and 15)          17,215        8,086
   Expenditures on site reclamation and restoration                      (4,881)      (3,232)
Change in non-cash working capital                                      (17,919)       1,617
---------------------------------------------------------------------------------------------
                                                                        616,711      446,418
---------------------------------------------------------------------------------------------

CASH FLOW FROM (USED IN) FINANCING ACTIVITIES
Borrowings (repayments) under revolving credit facilities               258,190     (162,555)
Issuance of senior secured notes                                         62,478      177,322
Repayment of senior secured notes                                        (8,214)      (8,347)
Issue of trust units                                                    259,691       19,301
Trust unit issue costs                                                  (12,218)        (152)
Cash distributions paid, net of distribution reinvestment (Note 13)    (318,238)    (301,936)
Payment of retention bonus                                               (1,000)      (1,000)
Change in non-cash working capital                                         (179)        (397)
---------------------------------------------------------------------------------------------
                                                                        240,510     (277,764)
---------------------------------------------------------------------------------------------

CASH FLOW FROM (USED IN) INVESTING ACTIVITIES
Corporate acquisitions, net of cash received (Note 3)                  (504,996)     (39,385)
Acquisition of petroleum and natural gas properties                     (93,824)         529
Proceeds on disposition of petroleum and natural gas properties           2,538       57,691
Capital expenditures                                                   (257,895)    (192,591)
Net reclamation fund contributions (Note 4)                              (2,197)      (4,113)
Change in non-cash working capital                                       (5,260)       1,333
---------------------------------------------------------------------------------------------
                                                                       (861,634)    (176,536)
---------------------------------------------------------------------------------------------

DECREASE IN CASH AND CASH EQUIVALENTS                                    (4,413)      (7,882)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                              4,413       12,295
---------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                $      --    $   4,413
---------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to the consolidated financial statements.

<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005 and 2004 (all tabular amounts in thousands Cdn$ except per
unit and volume amounts)


1.  STRUCTURE OF THE TRUST

ARC Energy Trust ("ARC" or the "Trust") was formed on May 7, 1996  pursuant to
a Trust indenture (the "Trust  Indenture")  that has been amended from time to
time, most recently on May 12, 2005. Computershare Trust Company of Canada was
appointed as Trustee under the Trust Indenture. The beneficiaries of the Trust
are the holders of the trust units.

The Trust was  created for the  purposes of issuing  trust units to the public
and investing  the funds so raised to purchase a royalty in the  properties of
ARC Resources Ltd. ("ARC  Resources")  and ARC Sask Energy Trust ("ARC Sask").
The Trust  Indenture  was  amended on June 7, 1999 to convert the Trust from a
closed-end  to an open-ended  investment  Trust.  The current  business of the
Trust includes the investment in all types of energy  business-related  assets
including,  but not limited to,  petroleum  and  natural  gas-related  assets,
gathering,  processing and transportation  assets. The operations of the Trust
consist of the acquisition, development, exploitation and disposition of these
assets and the  distribution of the net cash proceeds from these activities to
the unitholders.


2.  SUMMARY OF ACCOUNTING POLICIES

The  consolidated  financial  statements  have  been  prepared  by  management
following Canadian generally accepted accounting  principles  ("GAAP").  These
principles  differ in certain  respects from accounting  principles  generally
accepted  in the United  States of America  ("US GAAP") and to the extent that
they  affect  the  Trust,  these  differences  are  described  in Note 20. The
preparation of financial  statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure  of  contingencies  at the date of the  financial  statements,  and
revenues and expenses during the reporting period. Actual results could differ
from those estimated.

In particular, the amounts recorded for depletion,  depreciation and accretion
of  the  petroleum  and  natural  gas  properties  and  for  asset  retirement
obligations  are based on  estimates of reserves  and future  costs.  By their
nature, these estimates, and those related to future cash flows used to assess
impairment,  are  subject  to  measurement  uncertainty  and the impact on the
financial statements of future periods could be material.

PRINCIPLES OF CONSOLIDATION

The consolidated  financial  statements  include the accounts of the Trust and
its subsidiaries.  Any reference to "the Trust" throughout these  consolidated
financial   statements  refers  to  the  Trust  and  its   subsidiaries.   All
inter-entity transactions have been eliminated.

REVENUE RECOGNITION

Revenue  associated  with the sale of crude oil,  natural gas, and natural gas
liquids  ("NGLs") owned by the Trust are recognized when title passes from the
Trust to its customers.

TRANSPORTATION

Costs paid by the Trust for the  transportation  of natural gas, crude oil and
NGLs from the wellhead to the point of title transfer are recognized  when the
transportation is provided.

JOINT VENTURE

The Trust conducts many of its oil and gas production activities through joint
ventures and the financial  statements reflect only the Trust's  proportionate
interest in such activities.


DEPLETION AND DEPRECIATION

Depletion  of  petroleum  and  natural  gas  properties  and  depreciation  of
production equipment are calculated on the unit-of-production basis based on:

     (a)  total  estimated  proved  reserves  calculated  in  accordance  with
          National Instrument 51-101,  Standards of Disclosure for Oil and Gas
          Activities;

     (b)  total capitalized costs, excluding undeveloped lands, plus estimated
          future development costs of proved undeveloped  reserves,  including
          future estimated asset retirement costs; and

     (c)  relative   volumes  of  petroleum   and  natural  gas  reserves  and
          production,  before  royalties,  converted at the energy  equivalent
          conversion  ratio of six  thousand  cubic feet of natural gas to one
          barrel of oil.

UNIT BASED COMPENSATION

The Trust has  established  a Trust Unit  Incentive  Rights Plan (the  "Rights
Plan") for  employees,  independent  directors and long-term  consultants  who
otherwise meet the definition of an employee of the Trust.  The exercise price
of the  rights  granted  under the Plan may be  reduced  in future  periods in
accordance with the terms of the Plan. The Trust accounts for the rights using
the fair value  method,  whereby the fair value of rights is determined on the
date on which fair value can initially be  determined.  The fair value is then
recorded as

<PAGE>


compensation   expense  over  the  period  that  the  rights   vest,   with  a
corresponding increase to contributed surplus. When rights are exercised,  the
proceeds,  together  with the amount  recorded  in  contributed  surplus,  are
recorded to unitholders' capital.

WHOLE TRUST UNIT INCENTIVE PLAN COMPENSATION

The Trust has  established a Whole Trust Unit  Incentive Plan (the "Whole Unit
Plan") for  employees,  independent  directors and long-term  consultants  who
otherwise  meet the  definition  of an  employee  of the  Trust.  Compensation
expense  associated  with  the  Whole  Unit  Plan is  granted  in the  form of
Restricted  Trust Units ("RTUs") and  Performance  Trust Units ("PTUs") and is
determined  based on the  intrinsic  value of the  Whole  Trust  Units at each
period end. The  intrinsic  valuation  method is used as  participants  of the
Whole Unit Plan receive a cash payment on a fixed vesting date. This valuation
incorporates  the  period end trust  unit  price,  the number of RTUs and PTUs
outstanding at each period end, and certain management estimates. As a result,
large fluctuations,  even recoveries, in compensation expense may occur due to
changes in the underlying trust unit price. In addition,  compensation expense
is deferred and  recognized in earnings  over the vesting  period of the Whole
Unit  Plan  with  a   corresponding   increase  or  decrease  in  liabilities.
Classification  between accrued liabilities and other long-term liabilities is
dependent on the expected payout date.

The Trust  charges  amounts  relating to head office  employees to general and
administrative  expense,  amounts  relating to field  employees  to  operating
expense and amounts  relating to  geologists  and  geophysicists  to property,
plant and equipment.

The Trust has not incorporated an estimated  forfeiture rate for RTUs and PTUs
that will not vest.  Rather, the Trust accounts for actual forfeitures as they
occur.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include short-term investments, such as money market
deposits  or similar  type  instruments,  with an  original  maturity of three
months or less when purchased.

PROPERTY, PLANT AND EQUIPMENT ("PP&E")

The Trust follows the full cost method of accounting.  All costs of exploring,
developing and acquiring petroleum and natural gas properties, including asset
retirement  costs,  are  capitalized and accumulated in one cost centre as all
operations are in Canada.  Maintenance and repairs are charged against income,
and renewals and  enhancements  that extend the economic  life of the PP&E are
capitalized. Gains and losses are not recognized upon disposition of petroleum
and natural gas properties  unless such a disposition  would alter the rate of
depletion by 20 per cent or more.

IMPAIRMENT

The Trust places a limit on the aggregate carrying value of PP&E, which may be
amortized against revenues of future periods.

Impairment is recognized if the carrying amount of the PP&E exceeds the sum of
the  undiscounted  cash  flows  expected  to result  from the  Trust's  proved
reserves.  Cash  flows are  calculated  based on third  party  quoted  forward
prices, adjusted for the Trust's contract prices and quality differentials.

Upon  recognition  of  impairment,  the Trust would then measure the amount of
impairment by comparing the carrying amounts of the PP&E to an amount equal to
the  estimated  net present value of future cash flows from proved plus risked
probable  reserves.  The Trust's risk-free  interest rate is used to arrive at
the net  present  value of the future cash flows.  Any excess  carrying  value
above the net present value of the Trust's future cash flows would be recorded
as a permanent impairment.

The cost of unproved properties is excluded from the impairment test described
above and subject to a separate impairment test.

GOODWILL

The Trust must record goodwill  relating to a corporate  acquisition  when the
total purchase price exceeds the fair value for accounting purposes of the net
identifiable  assets and  liabilities  of the acquired  company.  The goodwill
balance is assessed  for  impairment  annually at year end or as events  occur
that could result in an impairment. Impairment is recognized based on the fair
value of the reporting entity  (consolidated Trust) compared to the book value
of the reporting entity.  If the fair value of the consolidated  Trust is less
than the book value,  impairment is measured by  allocating  the fair value of
the consolidated  Trust to the  identifiable  assets and liabilities as if the
Trust had been acquired in a business  combination  for a purchase price equal
to its fair value. The excess of the fair value of the consolidated Trust over
the amounts  assigned to the  identifiable  assets and liabilities is the fair
value of the  goodwill.  Any  excess of the book value of  goodwill  over this
implied fair value of goodwill is the impairment amount. Impairment is charged
to earnings in the period in which it occurs.

Goodwill is stated at cost less impairment and is not amortized.

ASSET RETIREMENT OBLIGATIONS ("ARO")

The Trust  recognizes  the fair  value of an ARO in the  period in which it is
incurred  when a  reasonable  estimate  of the fair  value  can be made.  On a
periodic basis, management will review these estimates and changes, if any, to
the estimate  will be applied on a  prospective  basis.  The fair value of the
estimated  ARO is  recorded  as a long-term  liability,  with a  corresponding
increase in the carrying amount of the related asset.  The capitalized  amount
is depleted on a unit-of-production  basis over the life of the reserves.  The
liability amount is increased each reporting period due to the passage of time
and the amount of accretion is charged to earnings in the period. Revisions to
the estimated

<PAGE>


timing of cash flows or to the original estimated undiscounted cost would also
result in an  increase  or decrease to the ARO.  Actual  costs  incurred  upon
settlement  of the ARO  are  charged  against  the  ARO to the  extent  of the
liability  recorded.  Any  difference  between the actual costs  incurred upon
settlement  of the ARO and the recorded  liability is  recognized as a gain or
loss in the Trust's earnings in the period in which the settlement occurs.

INCOME TAXES

The Trust follows the liability  method of accounting for income taxes.  Under
this  method,  income  tax  liabilities  and  assets  are  recognized  for the
estimated tax  consequences  attributable  to differences  between the amounts
reported in the financial statements of the Trust's corporate subsidiaries and
their  respective  tax base,  using  substantively  enacted  future income tax
rates.  The effect of a change in income  tax rates on future tax  liabilities
and assets is recognized  in income in the period in which the change  occurs.
Temporary  differences  arising on  acquisitions  result in future  income tax
assets and liabilities.

The Trust is a taxable entity under the Income Tax Act (Canada) and is taxable
only on income that is not distributed or distributable to the unitholders. As
the Trust  distributes  all of its taxable income to the unitholders and meets
the  requirements  of the Income Tax Act (Canada)  applicable to the Trust, no
provision for income taxes has been made in the Trust.

BASIC AND DILUTED PER TRUST UNIT CALCULATIONS

Basic net  income  per unit is  computed  by  dividing  the net  income by the
weighted average number of units  outstanding  during the period.  Diluted net
income per unit amounts are calculated giving effect to the potential dilution
that would occur if rights were exercised at the beginning of the period.  The
treasury  stock method  assumes that  proceeds  received  from the exercise of
in-the-money rights and any unrecognized trust unit incentive compensation are
used to repurchase units at the average market price.

DERIVATIVE FINANCIAL INSTRUMENTS

The Trust is exposed to market risks resulting from  fluctuations in commodity
prices,  foreign  exchange  rates and interest  rates in the normal  course of
operations.  A  variety  of  derivative  instruments  are used by the Trust to
reduce its exposure to  fluctuations  in commodity  prices,  foreign  exchange
rates, and interest rates. The fair values of these derivative instruments are
based on an estimate of the amounts  that would have been  received or paid to
settle these instruments  prior to maturity.  The Trust considers all of these
transactions to be effective  economic  hedges,  however,  the majority of the
Trust's  contracts  do not qualify or have not been  designated  as  effective
hedges for accounting purposes.

For derivative  instruments  that do qualify as effective  accounting  hedges,
policies and procedures are in place to ensure that the required documentation
and  approvals  are  in  place.  This  documentation   specifically  ties  the
derivative financial instrument to its use, and in the case of commodities, to
the mitigation of market price risk  associated with cash flows expected to be
generated.  When  applicable,  the Trust  also  identifies  all  relationships
between  hedging  instruments and hedged items, as well as its risk management
objective  and the strategy for  undertaking  hedge  transactions.  This would
include  linking the particular  derivative to specific assets and liabilities
on  the  consolidated  balance  sheet  or  to  specific  firm  commitments  or
forecasted  transactions.  Where  specific  hedges  are  executed,  the  Trust
assesses,  both at the inception of the hedge and on an ongoing basis, whether
the  derivative  used in the  particular  hedging  transaction is effective in
offsetting changes in fair value or cash flows of the hedged item.

Realized and unrealized gains and losses  associated with hedging  instruments
that have been  terminated  or cease to be effective  prior to  maturity,  are
deferred on the  consolidated  balance  sheet and  recognized in income in the
period  in  which  the  underlying  hedged  transaction  is  recognized.   For
transactions that do not qualify for hedge  accounting,  the Trust applies the
fair value  method of  accounting  by  recording  an asset or liability on the
consolidated  balance sheet and  recognizing  changes in the fair value of the
instruments in the statement of income for the current period.

FOREIGN CURRENCY TRANSLATION

Monetary  assets  and  liabilities  denominated  in  a  foreign  currency  are
translated at the rate of exchange in effect at the consolidated balance sheet
date.  Revenues and expenses are  translated  at the monthly  average rates of
exchange. Translation gains and losses are included in income in the period in
which they arise.

NON-CONTROLLING INTEREST

The Trust must record non-controlling interest when exchangeable shares issued
by  a   subsidiary   of  the  Trust  are   transferable   to  third   parties.
Non-controlling interest on the consolidated balance sheet is recognized based
on  the  fair  value  of  the  exchangeable  shares  upon  issuance  plus  the
accumulated earnings attributable to the non-controlling  interest. Net income
is reduced  for the portion of earnings  attributable  to the  non-controlling
interest.  As the  exchangeable  shares  are  converted  to trust  units,  the
non-controlling  interest on the consolidated  balance sheet is reduced by the
cumulative book value of the exchangeable  shares and unitholders'  capital is
increased by the corresponding amount.

RECLASSIFICATION

Certain information  provided for prior years has been reclassified to conform
to the presentation adopted in 2005.

<PAGE>


3.  CORPORATE ACQUISITIONS

REDWATER AND NORTH PEMBINA CARDIUM UNIT

On December  16,  2005 the Trust  acquired  all of the issued and  outstanding
shares of three legal  entities,  3115151  Nova Scotia  Company,  3115152 Nova
Scotia  Company  and 3115153  Nova  Scotia  Company  which  together  hold the
Redwater and North  Pembina  Cardium Unit assets  (collectively  "Redwater and
NPCU")  for total  consideration  of $462.8  million.  The  allocation  of the
purchase price and consideration paid were as follows:


NET ASSETS ACQUIRED
------------------------------------------------------------------------------

Working capital deficit                                $                (629)
Property, plant and equipment                                        729,482
Asset retirement obligations                                         (70,700)
Future income taxes                                                 (195,339)

TOTAL NET ASSETS ACQUIRED                              $             462,814
------------------------------------------------------------------------------



CONSIDERATION PAID
------------------------------------------------------------------------------

Cash consideration and fees paid                       $             462,814

TOTAL CONSIDERATION PAID                               $             462,814
------------------------------------------------------------------------------

The  acquisition  of  Redwater  and NPCU has  been  accounted  for as an asset
acquisition pursuant to EIC-124.

In addition to consideration paid, the Trust committed to making contributions
to a restricted reclamation fund as detailed in Note 18.

The future income tax  liability on  acquisition  was based on the  difference
between the fair value of the  acquired  net assets of $463.4  million and the
associated tax basis of $93.3 million.

These consolidated financial statements incorporate the operations of Redwater
and NPCU from December 16, 2005.

ROMULUS EXPLORATION INC.

On June 30, 2005, the Trust acquired all of the issued and outstanding  shares
of Romulus  Exploration  Inc.  ("Romulus")  for total  consideration  of $42.2
million.  The allocation of the purchase price and consideration  paid were as
follows:

NET ASSETS ACQUIRED
------------------------------------------------------------------------------

Working capital deficit                                $              (1,359)
Property, plant and equipment                                         62,456
Asset retirement obligations                                            (443)
Future income taxes                                                  (18,472)

TOTAL NET ASSETS ACQUIRED                              $              42,182
------------------------------------------------------------------------------


CONSIDERATION PAID
------------------------------------------------------------------------------

Cash and fees paid                                     $              42,182

TOTAL CONSIDERATION PAID                               $              42,182
------------------------------------------------------------------------------

The  acquisition  of Romulus has been  accounted  for as an asset  acquisition
pursuant to EIC-124.

The future income tax  liability on  acquisition  was based on the  difference
between  the fair  value of the  acquired  net assets of $44  million  and the
associated tax basis of $9 million.

These consolidated financial statements incorporate the operations of Romulus
from June 30, 2005.

<PAGE>


HARRINGTON & BIBLER

On December 31,  2004,  the Trust  acquired all of the issued and  outstanding
shares of four legal  entities - Harrington  Oil & Gas Ltd.,  Bibler Oil & Gas
Ltd., Lesco Oil & Gas Ltd., and Bibco Oil & Gas Ltd. ("Harrington & Bibler") -
for total consideration of $41.4 million. The allocation of the purchase price
and consideration paid were as follows:


NET ASSETS ACQUIRED
------------------------------------------------------------------------------

Working capital surplus (including cash of $2,124)     $               3,479
Property, plant and equipment                                         55,229
Future income taxes                                                  (17,259)

TOTAL NET ASSETS ACQUIRED                              $              41,449
------------------------------------------------------------------------------


CONSIDERATION PAID
------------------------------------------------------------------------------

Cash and fees paid                                     $              41,449

TOTAL CONSIDERATION PAID                               $              41,449
------------------------------------------------------------------------------

The  acquisition  of  Harrington & Bibler has been  accounted  for as an asset
acquisition pursuant to EIC-124.

The future income tax  liability on  acquisition  was based on the  difference
between  the fair  value of the  acquired  net assets of $38  million  and the
associated tax basis of $5.3 million.

These consolidated  financial statements incorporate the results of operations
of the acquired Harrington & Bibler properties from December 31, 2004.

UNITED PRESTVILLE LTD.

On June 8, 2004, the Trust acquired all of the issued and  outstanding  shares
of United  Prestville Ltd.  ("United  Prestville") for total  consideration of
$30.6 million.  The allocation of the purchase  price and  consideration  paid
were as follows:

NET ASSETS ACQUIRED
------------------------------------------------------------------------------

Working capital deficit                                $              (2,569)
Property, plant and equipment                                         40,412
Future income taxes                                                   (7,283)

TOTAL NET ASSETS ACQUIRED                              $              30,560
------------------------------------------------------------------------------


CONSIDERATION PAID
------------------------------------------------------------------------------

Cash fees paid                                         $                  60
Trust units issued                                                    30,500

TOTAL CONSIDERATION PAID                               $              30,560
------------------------------------------------------------------------------

The  acquisition  of  United  Prestville  has been  accounted  for as an asset
acquisition pursuant to EIC-124.

The future income tax  liability on  acquisition  was based on the  difference
between  the fair value of the  acquired  net assets of $33.1  million and the
associated tax basis of $19.3 million.

These consolidated  financial statements  incorporate the operations of United
Prestville from June 8, 2004.


<PAGE>


4.  RECLAMATION FUND

-------------------------------------------------------------------------------
                                                         2005             2004
-------------------------------------------------------------------------------

Balance, beginning of year                       $     21,294     $     17,181
Contributions                                           6,000            6,000
Reimbursed expenditures (1)                            (4,644)          (3,097)
Interest earned on fund                                   841            1,210

Balance, end of year                             $     23,491     $     21,294
-------------------------------------------------------------------------------

(1)  Amount  differs  from  actual  expenditures  incurred by the Trust due to
     timing differences.


A reclamation fund was established to fund future asset retirement  obligation
costs.  The  Board  of  Directors  of ARC  Resources  has  approved  voluntary
contributions   over  a  20  year  period   that  result  in  minimum   annual
contributions  of $6 million ($6 million in 2004) based upon properties  owned
as at December 31, 2005. In addition,  the Trust has committed to a restricted
reclamation  fund  associated  with  the  Redwater  property  acquired  in the
Redwater  and NPCU  acquisition,  detailed  in Note 18.  Contributions  to the
reclamation fund and interest earned on the reclamation fund balance have been
deducted from the cash distributions to the unitholders.


<TABLE>
<CAPTION>
5.  PROPERTY, PLANT AND EQUIPMENT

----------------------------------------------------------------------------------------
                                                              2005                 2004
----------------------------------------------------------------------------------------
<S>                                              <C>                    <C>
Property, plant and equipment, at cost           $       4,141,958      $     2,969,319
Accumulated depletion and depreciation                  (1,211,981)            (952,673)

Property, plant and equipment, net               $       2,929,977      $     2,016,646
----------------------------------------------------------------------------------------
</TABLE>

The calculation of 2005 depletion and depreciation  included an estimated $488
million ($374.2 million in 2004) for future  development costs associated with
proved undeveloped reserves and excluded $58.9 million ($52.5 million in 2004)
for the cost value of unproved properties.

The Trust performed a ceiling test  calculation at December 31, 2005 to assess
the recoverable value of PP&E. Based on the calculation,  the present value of
future net revenues from the Trust's  proved plus probable  reserves  exceeded
the carrying  value of the Trust's PP&E at December  31, 2005.  The  benchmark
prices used in the calculation are as follows:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
                                           WTI Oil        AECO Gas           USD/CAD
Year                                      ($US/bbl)    (Cdn$/mmbtu)   Exchange Rates
-------------------------------------------------------------------------------------
<S>                                          <C>             <C>                <C>
2006                                         57.00           10.60              0.85
2007                                         55.00            9.25              0.85
2008                                         51.00            8.00              0.85
2009                                         48.00            7.50              0.85
2010                                         46.50            7.20              0.85
2011 - 2016                                  46.50            7.15              0.85

Remainder (1)                                 2.0%            2.0%              0.85
-------------------------------------------------------------------------------------
</TABLE>

(1)  Percentage  change  represents  the change in each year after 2016 to the
     end of the reserve life.

<PAGE>

6.  LONG-TERM DEBT

-------------------------------------------------------------------------------
                                                          2005             2004
-------------------------------------------------------------------------------

Revolving credit facilities
   Syndicated credit facility (1)                $     254,680    $          --
   Working capital facility                              3,800              290
Senior secured notes
   8.05% USD Note                                           --           33,701
   5.42% USD Note                                       87,443               --
   4.94% USD Note                                       34,977           36,108
   4.62% USD Note                                       72,868           75,225
   5.10% USD Note                                       72,868           75,225
-------------------------------------------------------------------------------
Total debt outstanding                           $     526,636    $     220,549
Current portion of debt                                     --            8,715
-------------------------------------------------------------------------------
Long-term debt                                   $     526,636    $     211,834
-------------------------------------------------------------------------------

(1)  Amount  borrowed  under the  syndicated  credit  facility  includes  $2.9
     million of outstanding cheques in excess of bank balance.


In  April  2004,  the  Trust  consolidated  its  credit  facilities  into  one
syndicated  facility.  The  syndication  did not impact  security or covenants
under  the  credit  facility.  As at  December  31,  2005,  the  Trust has one
syndicated  credit  facility  and one working  capital  facility to a combined
maximum of $950 million,  less the amount of the  outstanding  senior  secured
notes.

Amounts due under the working capital facility and the senior secured notes in
the next 12 months have not been included in current liabilities as management
has the ability and intent to  refinance  this amount  through the  syndicated
credit facility.

Security for the senior  secured  notes is in the form of floating  charges on
all lands and  assignments.  The senior  secured  notes rank pari passu to the
revolving credit facilities.

The  payment  of  principal  and  interest  are  allowable  deductions  in the
calculation of cash  available for  distribution  to  unitholders  and rank in
priority to cash distributions  payable to unitholders.  Should the properties
securing  this debt  generate  insufficient  revenue to repay the  outstanding
balances, the unitholders have no direct liability.

Interest  paid  during the year did not  differ  significantly  from  interest
expense.

REVOLVING CREDIT FACILITIES

The syndicated  revolving  credit facility has a 364 day extendable  revolving
period and a two year term.  Borrowings  under the facility  bear  interest at
bank prime (five per cent and 4.25 per cent at December  31, 2005 and December
31,  2004,  respectively)  or, at the Trust's  option,  Canadian  dollar or US
dollar bankers' acceptances plus a stamping fee. The lenders review the credit
facility  each year and  determine  whether  they will  extend  the  revolving
periods for another  year.  The term date of the  current  credit  facility is
March 28, 2006.

In the event that the  revolving  periods are not  extended,  the loan balance
will become repayable over a two year term period with 20 per cent of the loan
balance  outstanding  on the term date  payable on March 28, 2007  followed by
three quarterly  payments of five per cent of the loan balance.  The remaining
65 per cent of the loan  balance  is payable in one lump sum at the end of the
term period. Collateral for the loan is in the form of floating charges on all
lands and assignments and negative  pledges on specific  petroleum and natural
gas properties.

The working capital facility allows for maximum  borrowings of $25 million and
is due and  payable  immediately  upon  demand by the bank.  The  facility  is
secured and is subject to the same covenants as the credit facility.

8.05 PER CENT, 5.42 PER CENT AND 4.94 PER CENT SENIOR SECURED USD NOTES

These senior secured notes were issued in three separate issues pursuant to an
Uncommitted  Master Shelf  Agreement.  The US$35 million  senior secured notes
were  issued in 2000,  bore  interest  at 8.05 per cent,  and had a  remaining
weighted  average term of 2.3 years at January 1, 2005.  During the year,  the
Trust repaid the total principal  outstanding,  incurring a make whole-premium
in the amount of US$1.1  million,  which was paid in order to early settle the
debt. This make-whole premium was charged to interest expense in the year.

In conjunction with the early retirement of the above notes,  additional US$75
million  notes were issued on December 15, 2005.  These notes bear interest at
5.42 per cent,  have a remaining  final term of 12 years  (remaining  weighted
average  term of 8.6 years) and require  equal  principal  repayments  over an
eight year period commencing in 2010.

<PAGE>


The US$30 million senior  secured notes were issued in 2002,  bear interest at
4.94 per cent,  have a remaining  final life of 4.8 years  (remaining  average
life of 2.8 years) and require equal principal payments of US$6 million over a
five year period commencing in 2006.

4.62 PER CENT AND 5.10 PER CENT SENIOR SECURED USD NOTES

These  notes  were  issued on April 27,  2004 via a private  placement  in two
tranches of US$62.5  million each. The first tranche of US$62.5  million bears
interest  at  4.62  per  cent  and has a  remaining  final  term of 8.3  years
(remaining  weighted  average term of 5.9 years) and require  equal  principal
repayments over a six year period commencing 2009.  Immediately  following the
issuance, the Trust entered into interest rate swap contracts that effectively
changed  the  interest  rate from fixed to  floating  (see Note 9). The second
tranche of US$62.5 million bears interest at 5.10 per cent and has a remaining
final term of 10.3  years  (remaining  weighted  average  term of 8.4  years).
Repayments of the notes will occur in years 2012 through 2016.


7.  OTHER LONG-TERM LIABILITIES

------------------------------------------------------------------------------
                                                         2005            2004
------------------------------------------------------------------------------

Accrued long-term incentive compensation         $     11,360     $     1,893
Retention bonuses                                       1,000           2,000

Total other long-term liabilities                $     12,360     $     3,893
------------------------------------------------------------------------------


The accrued long-term incentive compensation  represents the long-term portion
of the Trust's estimated  liability for the Whole Unit Plan as at December 31,
2005 (see Note 15). This amount is payable in 2007 through 2008.

The retention bonuses arose upon internalization of the management contract in
2002. The long-term portion of retention bonuses will be paid in August 2007.


8.  ASSET RETIREMENT OBLIGATIONS ("ARO")

The total  future ARO was  estimated  by  management  based on the Trust's net
ownership interest in all wells and facilities, estimated costs to reclaim and
abandon the wells and facilities  and the estimated  timing of the costs to be
incurred in future  periods.  The Trust has estimated the net present value of
its  total  ARO to be $165.1  million  as at  December  31,  2005  (2004 - $73
million)  based on a total future  undiscounted  liability  of $603.4  million
($247 million in 2004).  These  payments are expected to be made over the next
61 years with the bulk of  payments  being made in years 2016 to 2025 and 2046
to 2055. The Trust's  weighted  average credit  adjusted risk free rate of 5.6
per cent (6.9 per cent in 2004) and an inflation rate of two per cent (1.5 per
cent in 2004) were used to calculate the present value of the ARO.  During the
year, no gains or losses were recognized on settlements of ARO.

<TABLE>
<CAPTION>
The following table reconciles the Trust's ARO:

-----------------------------------------------------------------------------------------------
                                                                            2005          2004
-----------------------------------------------------------------------------------------------
<S>                                                                  <C>           <C>
Carrying amount, beginning of year                                   $    73,001   $    66,657
Increase in liabilities relating to corporate acquisitions                71,143            --
Increase in liabilities relating to development activities                 5,096         7,524
Increase (decrease) in liabilities relating to change in estimate         15,487        (2,528)
Settlement of liabilities during the year                                 (4,881)       (3,232)
Accretion expense                                                          5,207         4,580

Carrying amount, end of year                                         $   165,053   $    73,001
-----------------------------------------------------------------------------------------------
</TABLE>


9.  FINANCIAL INSTRUMENTS

The Trust is exposed to a number of financial  risks  including  the following
items as part of its normal course of business:

RISK FACTORS

A) CREDIT RISK

Most of the Trust's  accounts  receivable  relate to oil and natural gas sales
and are exposed to typical  industry  credit  risks.  The Trust  manages  this
credit risk by entering into sales  contracts  with only highly rated entities
and  reviewing its exposure to individual  entities on a regular  basis.  With
respect  to  counterparties  to  financial  instruments  the  Trust  partially
mitigates  associated  credit risk by limiting  transactions to counterparties
with investment grade credit ratings.

<PAGE>


B) VOLATILITY OF OIL AND NATURAL GAS PRICES

The Trust's  operational  results and financial  condition,  and therefore the
amount of  distributions  paid to the  unitholders are dependent on the prices
received  for  oil and  natural  gas  production.  Oil  and  gas  prices  have
fluctuated  widely during recent years and are determined by economic,  and in
the  case  of oil  prices,  political  factors.  Supply  and  demand  factors,
including  weather and general  economic  conditions  as well as conditions in
other oil and natural  gas  regions  impact  prices.  Any  movement in oil and
natural gas prices could have an effect on the Trust's financial condition and
therefore on the  distributions  to the  unitholders.  ARC may manage the risk
associated  with changes in commodity  prices by entering  into oil or natural
gas price  derivatives.  To the extent  that ARC  engages  in risk  management
activities  related to  commodity  prices,  it will be subject to credit risks
associated with counterparties with which it contracts.

C) VARIATIONS IN INTEREST RATES AND FOREIGN EXCHANGE RATES

Increases  in interest  rates could  result in a  significant  increase in the
amount  the Trust pays to  service  variable  interest  debt,  resulting  in a
decrease in  distributions  to unitholders.  World oil prices are quoted in US
dollars and the price received by Canadian  producers is therefore affected by
the Canadian/US dollar exchange rate that may fluctuate over time.  Variations
in the exchange rate of the Canadian dollar could have significant positive or
negative impact on future distributions.  ARC has initiated certain derivative
contracts to attempt to mitigate  these risks.  To the extent that ARC engages
in risk management  activities  related to foreign  exchange rates, it will be
subject to credit risk associated with counterparties with which it contracts.
The  increase  in the  exchange  rate  for  the  Canadian  dollar  and  future
Canadian/US  exchange  rates will impact future  distributions  and the future
value of the Trust's reserves as determined by independent evaluators.

FINANCIAL INSTRUMENTS

Financial  instruments of the Trust carried on the consolidated  balance sheet
consist mainly of cash and cash equivalents, accounts receivable,  reclamation
fund, current liabilities, other long-term liabilities,  commodity and foreign
currency  contracts and long-term debt.  Except as noted below, as at December
31, 2005 and 2004, there were no significant  differences between the carrying
value of these  financial  instruments  and their  estimated fair value due to
their short term nature.

The fair value of the US$230  million fixed rate senior  secured  approximated
Cdn$269 million as at December 31, 2005 and will vary with changes in interest
rates (2004 - US$183 million outstanding approximated Cdn$219 million).

DERIVATIVE CONTRACTS

During 2005, the Trust terminated  certain 2006 crude oil and foreign currency
contracts  resulting  in a  payment  of  $6.1  million  dollars  (2004  - $4.9
million). This amount reduced net income in the year.

Following is a summary of all derivative contracts in place as at December 31,
2005 in order to mitigate the risks discussed above:

<TABLE>
<CAPTION>
FINANCIAL WTI CRUDE OIL CONTRACTS
---------------------------------------------------------------------------------------------------------
                                                             Volume            Bought Put       Sold Put
Term                                     Contract           (bbl/d)              (US$/bbl)      (US$/bbl)
---------------------------------------------------------------------------------------------------------
<S>                                    <C>                    <C>                   <C>            <C>
2006
Jan 06 - Mar 06                        Bought Put             3,000                 50.00             --
Jan 06 - Mar 06                        Put Spread             1,000                 55.00          45.00
Jan 06 - Jun 06                        Put Spread             2,000                 50.00          40.00
Jan 06 - Dec 06                        Bought Put             1,000                 55.00             --
Jan 06 - Dec 06                        Put Spread             1,000                 55.00          45.00
Apr 06 - Dec 06                        Bought Put             2,000                 50.00             --
Apr 06 - Dec 06                        Put Spread             2,000                 55.00          45.00

ANNUAL WEIGHTED AVERAGE                                       6,992                 52.68          43.68
---------------------------------------------------------------------------------------------------------


FINANCIAL AECO NATURAL GAS CONTRACTS
---------------------------------------------------------------------------------------------------------
                                                             Volume            Bought Put       Sold Put
Term                                     Contract             (GJ/d)             (Cdn$/GJ)      (Cdn$/GJ)
---------------------------------------------------------------------------------------------------------

2006
Jan 06 - Mar 06                        Bought Put            10,000                  8.00             --
Jan 06 - Mar 06                        Put Spread            20,000                  8.50           6.50
Mar 06 - Mar 06                        Put Spread            10,000                 10.00           8.00
Apr 06 - Oct 06                        Put Spread            30,000                  8.00           6.00

ANNUAL WEIGHTED AVERAGE                                      25,836                  8.16           6.18
---------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
FINANCIAL AECO/NYMEX NATURAL GAS BASIS CONTRACTS
---------------------------------------------------------------------------------------------------------
                                                                                   Volume     Bought Put
Term                                     Contract                                (mmbtu/d)   (US$/mmbtu)
---------------------------------------------------------------------------------------------------------
<S>                                    <C>                                         <C>              <C>
2006
Jan 06 - Mar 06                        Bought Put                                  10,000           8.00

ANNUAL WEIGHTED AVERAGE                                                             2,466           8.00
---------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>

FINANCIAL FOREIGN EXCHANGE CONTRACTS
---------------------------------------------------------------------------------------------------------
                                                             Volume                  Swap           Swap
Term                                     Contract     (Millions US$)            (Cdn$/US$)     (US$/Cdn$)
---------------------------------------------------------------------------------------------------------
<S>                                          <C>               <C>                 <C>            <C>
USD SALES CONTRACTS
2006
Jan 06 - Jun 06                              Swap              37.1                1.2239         0.8172
Jan 06 - Dec 06                              Swap              60.0                1.1659         0.8577

ANNUAL WEIGHTED AVERAGE                                        78.6                1.1880         0.8417
---------------------------------------------------------------------------------------------------------


                                                             Volume                  Swap           Swap
Term                                     Contract     (Millions US$)            (Cdn$/US$)     (US$/Cdn$)
---------------------------------------------------------------------------------------------------------

USD PURCHASE CONTRACTS
2006
Oct 06 - Dec 06                              Swap              15.0                1.1685         0.8558
---------------------------------------------------------------------------------------------------------

ANNUAL WEIGHTED AVERAGE                                         3.8                1.1685         0.8558
---------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
FINANCIAL ELECTRICITY CONTRACTS (1)
---------------------------------------------------------------------------------------------------------
                                                                                   Volume           Swap
Term                                     Contract                                    (MWh)     (Cdn$/MWh)
<S>                                          <C>                                      <C>          <C>
Jan 06 - Dec 10                              Swap                                     5.0          63.00
---------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Contracted volume is based on a 24/7 term.

<TABLE>
<CAPTION>
FINANCIAL INTEREST RATE CONTRACTS (1)
---------------------------------------------------------------------------------------------------------
                                                          Principal          Fixed Annual      Spread On
Term                                     Contract     (Millions US$)             Rate (%)    3 Mo. LIBOR
---------------------------------------------------------------------------------------------------------
<S>                                          <C>               <C>                   <C>        <C>
Jan 06 - Apr 14                              Swap              30.5                  4.62       38.5 bps
Jan 06 - Apr 14                              Swap              32.0                  4.62      (25.5 bps)

TOTAL AND ANNUAL WEIGHTED AVERAGE                              62.5                  4.62        5.5 BPS
---------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Interest rate swap contracts have an optional  termination  date of April
     27,  2009.  The Trust has the option to extend the  optional  termination
     date by one year on the  anniversary  of the trade  date each year  until
     April 2009.  Starting in 2009,  the contract  amount  decreases  annually
     until 2014. The Trust pays the floating  interest rate based on the three
     month LIBOR plus a spread and receives the fixed interest rate.

<PAGE>


The Trust has designated its fixed price electricity  contract as an effective
accounting  hedge as at January 1, 2004. A realized gain of $0.3 million ($0.4
million  loss in 2004)  on the  electricity  contract  has  been  included  in
operating costs. The fair value unrealized loss on the electricity contract of
$0.2  million  has not been  recorded  on the  consolidated  balance  sheet at
December 31, 2005.

Previously  the Trust had entered  into two  interest  rate swap  contracts to
manage the Trust's interest rate exposure on debt instruments. These contracts
were designated as effective  accounting  hedges on the contract date.  During
the year one of these  contracts  was unwound at a nominal  cost.  In November
2005 the Trust entered into a new interest  rate swap  contract  which it also
designated as an effective  accounting  hedge. A realized gain of $0.5 million
for the year on the interest rate swap contracts has been included in interest
expense ($1.4  million gain in 2004).  The fair value  unrealized  loss on the
remaining two interest rate swap contracts of $1 million has not been recorded
on the consolidated balance sheet at December 31, 2005.

None of the  Trust's  commodity  and  foreign  currency  contracts  have  been
designated  as effective  accounting  hedges.  Accordingly,  all commodity and
foreign  currency  contracts have been accounted as assets and  liabilities in
the consolidated balance sheet based on their fair values.

The following  table  reconciles the movement in the fair value of the Trust's
financial  commodity  and  foreign  currency  contracts  that  have  not  been
designated as effective accounting hedges:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
                                                                  2005           2004
--------------------------------------------------------------------------------------
<S>                                                        <C>            <C>
Fair value, beginning of year (1)                          $   (4,042)    $  (14,575)
Fair value, end of year                                        (4,042)        (4,042)
--------------------------------------------------------------------------------------

Change in fair value of contracts in the year (1)                  --         10,533
Realized losses in the year                                   (87,558)       (86,909)
Non-cash amortization of crystallized hedging gains                --          4,883
Amortization of opening mark to market loss                        --        (14,575)

Loss on commodity and foreign currency contracts (1)       $  (87,558)    $  (86,068)
--------------------------------------------------------------------------------------

Commodity and foreign currency contracts liability         $   (7,167)    $  (26,336)
Commodity and foreign currency contract asset              $    3,125     $   22,294
--------------------------------------------------------------------------------------
</TABLE>

(1)  Excludes the fixed price  electricity  contract  and  interest  rate swap
     contracts that were accounted for as effective accounting hedges.


Upon implementation of the new hedge accounting  guideline on January 1, 2004,
the Trust recorded a liability and corresponding  deferred hedge loss of $14.6
million for the fair value of the contracts at that time. The opening deferred
hedge loss was amortized to income over the terms of the contracts in place at
January 1, 2004.  As at December  31, 2004,  the deferred  hedge loss had been
fully  amortized.  At December 31, 2005,  the fair value of the contracts that
were not designated as accounting  hedges was a loss of $4 million ($4 million
in 2004).

The Trust recorded a loss on commodity and foreign currency contracts of $87.6
million in the  statement  of income for 2005  ($86.1  million in 2004).  This
amount  includes the realized and  unrealized  gains and losses on  derivative
contracts that do not qualify as effective accounting hedges. During the year,
no unrealized gain/loss was recognized as there was no over-all change in fair
value of the contracts ($10.5 million unrealized gain in 2004).  Realized cash
losses on contracts  during the year of $87.6 million  ($86.9 million in 2004)
and  amortization  expense of $nil of the opening  deferred  hedge loss ($14.6
million in 2004) have been included in this amount.  In addition,  this amount
includes a non-cash  amortization gain of $nil ($4.9 million in 2004) relating
to contracts that were previously recorded on the consolidated balance sheet.

<PAGE>


10.  FUTURE INCOME TAXES

The tax  provision  differs from the amount  computed by applying the combined
Canadian  federal and provincial  statutory  income tax rates to income before
future income tax recovery as follows:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
                                                                  2005          2004
-------------------------------------------------------------------------------------
<S>                                                        <C>            <C>
Income before future income tax expense and recovery       $   364,140    $  219,541
-------------------------------------------------------------------------------------

Expected income tax expense at statutory rates                 136,990        85,410
Effect on income tax of:
   Net income of the Trust                                    (111,687)      (86,547)
   Effect of change in corporate tax rate                      (4,885)        (5,861)
   Resource allowance                                          (20,036)      (13,341)
   Unrealized (gain) on foreign exchange                        (1,588)       (8,412)
   Non-deductible crown charges                                  1,265         1,304
   Alberta Royalty Tax Credit                                      141           244
Capital tax                                                      1,460         1,103

Future income tax expense (recovery)                       $     1,660    $  (26,100)
-------------------------------------------------------------------------------------

The net future income tax liability is comprised of the following:

-------------------------------------------------------------------------------------
                                                                 2005           2004
-------------------------------------------------------------------------------------
Future tax liabilities:
   Capital assets in excess of tax value                   $  569,812     $  345,987
Future tax assets:
   Non-capital losses                                          (1,509)       (19,429)
   Asset retirement obligations                               (45,755)       (19,434)
   Commodity and foreign currency contracts                    (1,364)        (1,384)
Attributed Canadian royalty income                             (5,289)        (5,289)
Deductible share issue costs                                      (18)           (45)

Net future income tax liability                            $  515,877     $  300,406
-------------------------------------------------------------------------------------
</TABLE>

The petroleum and natural gas properties  and facilities  owned by the Trust's
corporate subsidiaries have an approximate tax basis of $567.2 million ($364.6
million in 2004)  available for future use as deductions  from taxable income.
Included in this tax basis are estimated  non-capital  loss carry  forwards of
$4.5 million ($56.7 million in 2004) that expire in the years through 2010.

$0.9  million of current  income tax was  accrued  for in 2005  relating  to a
predecessor company. No current income taxes were paid or payable in 2004.


11.  UNITHOLDERS' CAPITAL

The Trust is  authorized  to issue 650 million  units of which  199.1  million
units were issued and outstanding as at December 31, 2005 (185.8 million as at
December 31, 2004).

On December 23, 2005,  the Trust issued nine million  units at $26.65 per unit
for proceeds of $239.9 ($227.6 million net of trust unit issue costs) pursuant
to a public offering prospectus dated December 16, 2005.

The Trust has in place a Distribution  Reinvestment  and Optional Cash Payment
Program  Plan  ("DRIP")  in  conjunction  with the Trust's  transfer  agent to
provide  the  option for  unitholders  to  reinvest  cash  distributions  into
additional  units  issued  from  treasury  at a five per cent  discount to the
prevailing market price with no additional fees or commissions.

The Trust is an open ended mutual fund under which  unitholders have the right
to request  redemption  directly from the Trust. Units tendered by holders are
subject  to  redemption  under  certain  terms and  conditions  including  the
determination of the redemption price at the lower of the closing market price
on the date units are tendered or 90 per cent of the weighted  average trading
price for the 10 day  trading  period  commencing  on the  tender  date.  Cash
payments for units  tendered for  redemption are limited to $100,000 per month
with  redemption  requests in excess of this amount eligible to receive a note
from ARC Resources for a maximum of $500 million accruing  interest at six per
cent and repayable within 15 years.

<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
                                                             2005                       2004
-----------------------------------------------------------------------------------------------------
                                                   NUMBER OF                  Number of
                                                 TRUST UNITS            $   Trust Units            $
-----------------------------------------------------------------------------------------------------
<S>                                                  <C>        <C>             <C>        <C>
Balance, beginning of year                           185,822    1,926,351       179,780    1,843,112
Issued for cash                                        9,000      239,850            --           --
Issued for properties (Note 3)                            --           --         2,032       30,500
Issued on conversion of ARL
   exchangeable shares (Note 12)                         333        4,018           363        4,295
Issued on exercise of employee rights (Note 14)        1,500       24,052         1,751       20,672
Distribution reinvestment program                      2,449       48,789         1,896       27,924
Trust unit issue costs                                    --      (12,218)           --         (152)
-----------------------------------------------------------------------------------------------------

Balance, end of year                                 199,104    2,230,842       185,822    1,926,351
-----------------------------------------------------------------------------------------------------
</TABLE>


12.  EXCHANGEABLE SHARES

The ARC Resources  exchangeable shares ("ARL Exchangeable Shares") were issued
on January 31, 2001 at $11.36 per exchangeable share as partial  consideration
for the Startech Energy Inc. acquisition.  The issue price of the exchangeable
shares was  determined  based on the weighted  average  trading price of units
preceding the date of announcement of the  acquisition.  The ARL  Exchangeable
Shares had an exchange ratio of 1:1 at the time of issuance.

ARL  Exchangeable  Shares can be converted  (at the option of the holder) into
units at any time. The number of units issuable upon  conversion is based upon
the exchange  ratio in effect at the  conversion  date.  The exchange ratio is
calculated  monthly based on the cash distribution paid divided by the ten day
weighted average unit price preceding the record date. The exchangeable shares
are not  eligible  for  distributions  and,  in the  event  that  they are not
converted,  any outstanding shares are redeemable by the Trust for units on or
after February 1, 2004 until February 1, 2010. The ARL Exchangeable Shares are
publicly traded.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
ARL EXCHANGEABLE SHARES                                                2005                     2004
-----------------------------------------------------------------------------------------------------
<S>                                                                   <C>                      <C>
Balance, beginning of year                                            1,784                    2,011
Exchanged for trust units                                              (189)                    (227)
-----------------------------------------------------------------------------------------------------

Balance, end of year                                                  1,595                    1,784
Exchange ratio, end of year                                         1.83996                  1.67183

Trust units issuable upon conversion, end of year                     2,935                    2,982
-----------------------------------------------------------------------------------------------------
</TABLE>


The non-controlling interest on the consolidated balance sheet consists of the
fair value of the  exchangeable  shares  upon  issuance  plus the  accumulated
earnings  attributable  to  the  non-controlling   interest.  The  net  income
attributable to the non-controlling  interest on the consolidated statement of
income  represents  the  cumulative  share of net income  attributable  to the
non-controlling  interest based on the units issuable for exchangeable  shares
in proportion to total units issued and issuable at each period end.


<PAGE>


<TABLE>
<CAPTION>
Following is a summary of the non-controlling interest for 2005 and 2004:

------------------------------------------------------------------------------------------
                                                                         2005        2004
------------------------------------------------------------------------------------------
<S>                                                                  <C>         <C>
Non-controlling interest, beginning of year                          $ 35,967    $ 36,311
Reduction of book value for conversion to trust units                  (4,018)     (4,295)
Current period net income attributable to non-controlling interest      5,545       3,951

Non-controlling interest, end of year                                $ 37,494    $ 35,967

Accumulated earnings attributable to non-controlling interest        $ 20,684    $ 15,139
------------------------------------------------------------------------------------------
</TABLE>


13.  RECONCILIATION OF CASH FLOW AND DISTRIBUTIONS

Cash  distributions are calculated in accordance with the Trust Indenture.  To
arrive at cash distributions, cash flow from operating activities adjusted for
changes in non-cash  working capital and  expenditures on site restoration and
reclamation,  is reduced by reclamation fund contributions  including interest
earned on the fund and a portion of capital expenditures.  The portion of cash
flow withheld to fund capital  expenditures  is at the discretion of the Board
of Directors.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
                                                                         2005           2004
---------------------------------------------------------------------------------------------
<S>                                                               <C>            <C>
Cash flow from operating activities                               $   616,711    $   446,418
Change in non-cash working capital                                     17,919         (1,617)
Expenditures on site reclamation and restoration                        4,881          3,232
---------------------------------------------------------------------------------------------

Cash flow from operating activities after the above adjustments   $   639,511    $   448,033
Deduct:
   Cash withheld to fund current period capital expenditures         (256,104)      (110,846)
   Reclamation fund contributions and interest earned on fund          (6,841)        (7,210)
---------------------------------------------------------------------------------------------

Cash distributions (1)                                                376,566        329,977
Accumulated cash distributions, beginning of year                   1,298,252        968,275

Accumulated cash distributions, end of year                       $ 1,674,818    $ 1,298,252
---------------------------------------------------------------------------------------------

Cash distributions per unit (2)                                   $      1.99    $      1.80
Accumulated cash distributions per unit, beginning of year              14.24          12.44

Accumulated cash distributions per unit, end of year              $     16.23    $     14.24
---------------------------------------------------------------------------------------------
</TABLE>

(1)  Cash distributions include non-cash amounts of $58.3 million ($28 million
     - 2004). These amounts relate to the distribution reinvestment program.
(2)  Cash  distributions  per unit  reflect  the sum of the per  unit  amounts
     declared monthly to unitholders.


14.  TRUST UNIT INCENTIVE RIGHTS PLAN

The Trust Unit Incentive  Rights Plan (the "Rights  Plan") was  established in
1999  that  authorized  the  Trust  to  grant up to  8,000,000  rights  to its
employees,  independent directors and long-term consultants to purchase units,
of which  7,866,088  were granted to December 31, 2005.  The initial  exercise
price of rights granted under the Rights Plan may not be less than the current
market price of the units as at the date of grant and the maximum term of each
right is not to exceed 10 years.  In  general,  these  rights have a five year
term and vest equally  over three years  commencing  on the first  anniversary
date of the grant.  In  addition,  the  exercise  price of the rights is to be
adjusted downwards from time to time by the amount, if any, that distributions
to  unitholders  in any  calendar  quarter  exceeds  2.5 per cent (10 per cent
annually) of the Trust's net book value of property,  plant and equipment (the
"Excess Distribution"), as determined by the Trust.

During the year,  the Trust did not grant any rights (27,000 rights granted in
2004 at an exercise price of $15.42 per unit). No future rights will be issued
as the rights plan was  replaced  with a Whole Unit Plan during 2004 (see Note
15). The existing Rights Plan will be in place until the remaining 1.3 million
rights outstanding as at December 31, 2005 are exercised or cancelled.

A summary of the changes in rights outstanding under the Rights Plan is as
follows:

<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
                                                    2005                   2004
-----------------------------------------------------------------------------------------
                                                       WEIGHTED                 Weighted
                                                        AVERAGE                  Average
                                             NUMBER    EXERCISE      Number     Exercise
                                          OF RIGHTS    PRICE($)   of Rights     Price($)
-----------------------------------------------------------------------------------------
<S>                                           <C>         <C>         <C>         <C>
Balance, beginning of year                    3,009       10.92       4,869       11.29
Granted                                          --          --          27       15.42
Exercised                                    (1,500)      11.60      (1,751)      10.57
Cancelled                                      (160)      10.99        (136)      11.60
-----------------------------------------------------------------------------------------

Balance before reduction of exercise price    1,349       11.10       3,009       11.72
Reduction of exercise price (1)                  --       (0.88)         --       (0.80)
-----------------------------------------------------------------------------------------

Balance, end of year                          1,349       10.22       3,009       10.92
-----------------------------------------------------------------------------------------
</TABLE>

(1)  The holder of the right has the  option to  exercise  rights  held at the
     original grant price or a reduced exercise price.


<TABLE>
<CAPTION>
A summary of the plan as at December 31, 2005 is as follows:

------------------------------------------------------------------------------------------
                                    Adjusted        Number          Remaining    Number of
                  Exercise Price    Exercise     of Rights   Contractual Life       Rights
               At Grant Date ($)   Price ($)   Outstanding  of Rights (Years)  Exercisable
------------------------------------------------------------------------------------------
               <S>                 <C>         <C>          <C>                <C>
                           12.25        9.00            32                1.4           33
                           12.49       12.23           118                2.5          118
                           12.18       10.19         1,172                3.4          399
                           15.42       14.21            27                4.2            9
------------------------------------------------------------------------------------------

                           12.27       10.22         1,349                3.3          559
------------------------------------------------------------------------------------------
</TABLE>


The Trust  recorded  compensation  expense of $6.5  million for the year ($5.2
million in 2004) for the cost  associated  with the rights.  Of the  3,013,569
rights  issued on or after  January  1, 2003 that were  subject  to  recording
compensation expense,  355,499 rights have been cancelled and 1,458,929 rights
have been exercised to December 31, 2005.

The  Trust  used  the  Black-Scholes  option-pricing  model to  calculate  the
estimated fair value of the  outstanding  rights issued on or after January 1,
2003.  The following  assumptions  were used to arrive at the estimate of fair
value as at December 31, 2004:

-----------------------------------------------------------------------------
                                                                        2004
-----------------------------------------------------------------------------

Expected annual right's exercise price reduction                        0.72
Expected volatility                                                    13.2%
Risk-free interest rate                                                 3.7%
Expected life of option (years)                                          1.1
Expected forfeitures                                                      0%
-----------------------------------------------------------------------------


Prior to 2004,  the Trust  recorded  compensation  expense on its Rights  Plan
using the intrinsic  method. In 2004, the Trust adopted the fair value method.
Use of the fair  value  prior to 2004  would have  resulted  in an  immaterial
impact to the Trust.

<PAGE>


The  following  table  reconciles  the  movement  in the  contributed  surplus
balance:

------------------------------------------------------------------------------
                                                              2005       2004
------------------------------------------------------------------------------

Balance, beginning of year                                 $ 6,475    $ 3,471
Compensation expense                                         6,524      5,171
Net benefit on rights exercised (1)                         (6,617)    (2,167)
------------------------------------------------------------------------------

Balance, end of year                                       $ 6,382    $ 6,475
------------------------------------------------------------------------------

(1)  Upon exercise, the net benefit is reflected as a reduction of contributed
     surplus and an increase to unitholders' capital.


Compensation  expense has not been recorded for rights  granted prior to 2003.
The following table  represents the pro forma net income and the pro forma net
income per unit had the Trust applied the fair value method to rights  granted
in 2002.


-------------------------------------------------------------------------------
PRO FORMA RESULTS                                            2005         2004
-------------------------------------------------------------------------------

Net income as reported                                 $      356   $  241,690
Less:  compensation expense for rights issued in 2002       6,599        3,189
-------------------------------------------------------------------------------

Pro forma net income                                   $      350   $  238,501
Basic net income per trust unit
   As reported                                         $     1.90   $     1.32
   Pro forma                                           $     1.86   $     1.30
-------------------------------------------------------------------------------

Diluted net income per trust unit
   As reported                                         $     1.88   $     1.31
   Pro forma                                           $     1.85   $     1.29
-------------------------------------------------------------------------------


15.  WHOLE TRUST UNIT INCENTIVE PLAN

In March  2004,  the  Board of  Directors,  upon  recommendation  of the Human
Resources  and  Compensation  Committee,  approved  a  new  Whole  Trust  Unit
Incentive  Plan (the "Whole Unit  Plan") to replace  the  existing  Trust Unit
Incentive Rights Plan for new awards granted subsequent to March 31, 2004. The
new Whole Unit Plan will result in  employees,  officers  and  directors  (the
"plan participants") receiving cash compensation in relation to the value of a
specified number of underlying notional units. The Whole Unit Plan consists of
Restricted  Trust Units  ("RTUs") for which the number of trust units is fixed
and will  vest  over a period  of three  years  and  Performance  Trust  Units
("PTUs")  for which the number of trust units is variable and will vest at the
end of three years.

Upon vesting,  the plan participant  receives a cash payment based on the fair
value of the underlying trust units plus notional accrued  distributions.  The
cash compensation issued upon vesting of the PTUs is dependent upon the future
performance  of  the  Trust  compared  to its  peers  based  on a  performance
multiplier.  The performance multiplier is based on the percentile rank of the
Trust's total unitholder return. The cash compensation  issued upon vesting of
the PTUs may range  from zero to two times the  number of the PTUs  originally
granted.

The fair value  associated with the RTUs and PTUs is expensed in the statement
of  income  over  the  vesting  period.  As the  value of the RTUs and PTUs is
dependent upon the unit price, the expense recorded in the statement of income
may fluctuate over time.

The Trust  recorded  compensation  expense of $8.8 million and $1.9 million to
general and administrative and operating expenses,  respectively in 2005 ($2.9
million and $nil in 2004) for the estimated cost of the plan. The compensation
expense was based on the  December  31,  2005 unit price of $26.49  ($17.90 in
2004),  distributions  of $0.20 per unit per month  during the year ($0.15 per
month in 2004), and the number of units to be issued on maturity.

<PAGE>


-------------------------------------------------------------------------------
                                         2005                    2004
-------------------------------------------------------------------------------
                                NUMBER OF   NUMBER OF   Number of   Number of
                                     RTUS        PTUS        RTUs        PTUs
-------------------------------------------------------------------------------

Balance, beginning of year        224,398     128,331          --          --
Vested                            (78,745)         --
Granted                           367,030     304,655     226,837     128,908
Forfeited                         (33,918)    (42,429)     (2,439)       (577)
-------------------------------------------------------------------------------

Balance, end of year              478,765     390,557     224,398     128,331
-------------------------------------------------------------------------------


<TABLE>
<CAPTION>
The  following  table  reconciles  the  change in total  accrued  compensation
liability relating to the Whole Unit Plan:

--------------------------------------------------------------------------------------
                                                           DECEMBER 31,   December 31,
                                                                  2005           2004
--------------------------------------------------------------------------------------
<S>                                                            <C>            <C>
Balance, beginning of year                                     $ 2,915        $    --
Increase in liabilities in the year (net of cash payments)
   General and administrative expense                            8,774          2,915
   Operating expense                                             1,916             --
   Property, plant and equipment                                 1,352             --

Balance, end of year                                           $14,957        $ 2,915

Current portion of liability                                     3,597          1,022

Long-term liability                                            $11,360        $ 1,893
--------------------------------------------------------------------------------------
</TABLE>

During the year $1.6 million in cash payments were made to employees  relating
to the Whole Unit Plan (2004 - $nil).


16. BASIC AND DILUTED PER TRUST UNIT CALCULATIONS

<TABLE>
<CAPTION>
Net income per unit has been determined based on the following:

----------------------------------------------------------------------------------
                                                                   2005      2004
----------------------------------------------------------------------------------
<S>                                                             <C>       <C>
Weighted average trust units (1)                                188,237   183,123
Trust units issuable on conversion of exchangeable shares (2)     2,935     2,982
Dilutive impact of rights (3)                                     1,372     1,756

Dilutive trust units and exchangeable shares                    192,544   187,861
----------------------------------------------------------------------------------
</TABLE>

(1)  Weighted average units excludes units issuable for exchangeable shares.
(2)  Diluted units include units issuable for outstanding  exchangeable shares
     at the period end exchange ratio.
(3)  All  outstanding  rights  were  dilutive  and  therefore  none  have been
     excluded in the diluted unit calculation.


Basic  net  income  per unit has been  calculated  based on net  income  after
non-controlling interest divided by weighted average units. Diluted net income
per unit has  been  calculated  based  on net  income  before  non-controlling
interest divided by dilutive units.

<PAGE>


17.  GAIN (LOSS) ON FOREIGN EXCHANGE

The  following  is a summary  of the gain  (loss)  on  commodity  and  foreign
currency contracts for 2005:

-------------------------------------------------------------------------------
                                                              2005        2004
-------------------------------------------------------------------------------

Unrealized (loss) gain on US$ denominated debt            $ (4,221)   $ 21,922
Realized gain (loss) on US$ denominated debt repayments     10,580      (3,495)
-------------------------------------------------------------------------------

Total non-cash gain on US$ denominated transactions       $  6,359    $ 18,427
Realized cash gain on US$ denominated transactions              53       2,286

Total foreign exchange gain                               $  6,412    $ 20,713
-------------------------------------------------------------------------------


18.  COMMITMENTS AND CONTINGENCIES

<TABLE>
<CAPTION>
Following is a summary of the Trust's contractual  obligations and commitments
as at December 31, 2005:

---------------------------------------------------------------------------------------------
                                                              Payments Due by Period
($ millions)                           2006     2007-2008    2009-2010  Thereafter     Total
---------------------------------------------------------------------------------------------
<S>                                    <C>          <C>           <C>        <C>       <C>
Debt repayments (1)                      --         279.4         49.2       198.0     526.6
Reclamation fund contributions (2)      6.1          11.8         10.2        80.9     109.0
Purchase commitments                    2.4           3.4          3.2         8.0      17.0
Operating leases                        4.1           8.1          7.3          --      19.5
Derivative contract premiums (3)       12.4            --           --          --      12.4
Retention bonuses                       1.0           1.0           --          --       2.0

Total contractual obligations          26.0         303.7         69.9       286.9     686.5
---------------------------------------------------------------------------------------------
</TABLE>

(1)  Includes long-term and short-term debt.
(2)  Contribution commitments to a restricted reclamation fund associated with
     the Redwater property acquired in the Redwater and NPCU acquisition.
(3)  Fixed  premiums  to be  paid  in  future  periods  on  certain  commodity
     derivative contracts.

The Trust enters into  commitments for capital  expenditures in advance of the
expenditures  being made. At a given point in time,  it is estimated  that the
Trust has committed to capital  expenditures  by means of giving the necessary
authorizations  to incur capital in a future period.  This  commitment has not
been disclosed in the above  commitment table as it is of a routine nature and
is part of normal  course of  operations  for active oil and gas companies and
trusts.

Other items  excluded  from the  commitment  table above  include  commitments
regarding asset retirement  obligations and the Whole Unit Plan. These amounts
have been accrued for,  however,  the final payment  amounts are uncertain and
are therefore excluded above.

The Trust has  certain  sales  contracts  with  aggregators  whereby the price
received by the Trust is  dependent  upon the  contracts  entered  into by the
aggregator.  The Trust  has an  obligation  for  future  fixed  transportation
charges,  pursuant to one aggregator contract, for which the transportation is
not  physically  being  utilized  due to a shortage  of demand.  The Trust has
estimated  that its  total  future  liability  for the  future  transportation
charges  approximates  $10 million  over the period 2006  through  2012.  This
transportation  charge will be realized as a reduction  of the Trust's net gas
price over the corresponding period as the charges are incurred. For all other
aggregator  contracts,  prices  received by the Trust  closely track to market
prices.

The Trust is involved in litigation and claims arising in the normal course of
operations.  Management is of the opinion that any resulting settlements would
not materially  affect the Trust's  financial  position or reported results of
operations.

In  addition  to the  above,  the Trust has  commitments  related  to its risk
management program (see Note 9).

<PAGE>


19.   SUBSEQUENT EVENTS

FINANCIAL WTI CRUDE OIL CONTRACTS

On January 12, 2006,  the Trust entered into a series of $55 - $90 ($40) 3-way
collars for the period  February  2006 to December 2009 for 5,000 bbl per day.
The  contracts  will  result in a $7.5  million  premium  payment  during  the
duration of the contracts.

PROPERTY ACQUISITIONS

During  January 2006, the Trust acquired  property,  plant,  and equipment for
consideration of $26 million.


20.  DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
     ACCOUNTING PRINCIPLES

The  consolidated  financial  statements have been prepared in accordance with
Canadian GAAP, which differs in some respects from US GAAP. Any differences in
accounting  principles  as  they  pertain  to  the  accompanying  consolidated
financial statements are immaterial except as described below:

The  application  of US GAAP would have the following  effect on net income as
reported.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                                                         2005         2004
-----------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>          <C>
Net income as reported for Canadian GAAP                                            $ 356,935    $ 241,690
Adjustments:
   Depletion and depreciation (a)                                                      15,639       19,004
   Unrealized gain on derivative instruments (c)                                           --       13,721
   Unit based compensation (b)                                                         (7,274)      (9,219)
   Non-controlling interest (e)                                                         5,545        3,951
   Effect of applicable income taxes on the above adjustments                          (5,357)      (2,142)
-----------------------------------------------------------------------------------------------------------
Net income under US GAAP                                                            $ 365,488    $ 267,005


Net income per trust unit (Note 16)
-----------------------------------------------------------------------------------------------------------
   Basic (f)                                                                        $    1.91    $    1.43
   Diluted (f)                                                                      $    1.90    $    1.42
-----------------------------------------------------------------------------------------------------------

COMPREHENSIVE INCOME:
Net income under US GAAP                                                            $ 365,488    $ 267,005
Unrealized gain (loss) on derivative instruments, net of applicable income taxes        1,593       (2,441)

Comprehensive income (c)                                                            $ 367,081    $ 264,564
-----------------------------------------------------------------------------------------------------------
</TABLE>

The application of US GAAP would have the following effect on the consolidated
balance sheets as reported:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                                                         2005                          2004
----------------------------------------------------------------------------------------------------
                                              CANADIAN             US       Canadian             US
                                                  GAAP           GAAP           GAAP           GAAP
----------------------------------------------------------------------------------------------------
<S>                                        <C>            <C>            <C>            <C>
Property, plant and equipment              $ 2,929,977    $ 2,797,398    $ 2,016,646    $ 1,868,428
Commodity and foreign currency contracts        (4,042)        (5,261)        (4,042)        (7,685)
Future income taxes                           (515,877)      (491,831)      (300,406)      (270,173)
Non-controlling interest (e)                   (37,494)            --        (35,967)            --
Temporary equity (d)                                --     (5,077,983)            --     (3,379,594)
Unitholders' capital                        (2,230,842)            --     (1,926,351)            --
Contributed surplus                             (6,382)            --         (6,475)            --
Accumulated earnings                        (1,235,742)     1,676,473       (878,807)       651,227
Accumulated other comprehensive loss                --            802             --          2,395
----------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>


The above noted  differences  between Canadian GAAP and US GAAP are the result
of the following:

(a) The Trust performs an impairment test that limits net capitalized costs to
the discounted  estimated  future net revenue from proved and risked  probable
oil and  natural  gas  reserves  plus the  cost of  unproved  properties  less
impairment,  using  forward  prices.  For Canadian GAAP the discount rate used
must be equal to a risk free interest rate. Under US GAAP, companies using the
full cost method of accounting for oil and gas producing  activities perform a
ceiling test on each cost centre using discounted estimated future net revenue
from proved oil and gas reserves using a discount rate of 10 per cent.  Prices
used in the US GAAP ceiling tests are those in effect at year end. The amounts
recorded for  depletion  and  depreciation  have been  adjusted in the periods
following the additional write-downs taken under US GAAP to reflect the impact
of the reduction of depletable costs.

(b) For US GAAP purposes, the Rights Plan has been accounted for as a variable
compensation  plan as the exercise  price of the rights is subject to downward
revisions from time to time.  Accordingly,  compensation expense is determined
as the excess of the  market  price over the  adjusted  exercise  price of the
rights at the end of each  reporting  period and is deferred and recognized in
income over the vesting  period of the rights.  After the rights have  vested,
compensation  expense is  recognized in income in the period in which a change
in the market price of the units or the exercise  price of the rights  occurs.
Canadian GAAP requires that all unit-based  compensation plans be fair valued.
As such, an adjustment to earnings has been recorded to reflect the additional
compensation  expense  on rights  issued  prior to January 1, 2003 for US GAAP
purposes and for the difference between the intrinsic value and the fair value
of rights issued since that time which are still  outstanding  at December 31,
2005.

(c) US GAAP requires that all  derivative  instruments  (including  derivative
instruments  embedded  in other  contracts),  as  defined,  be recorded on the
consolidated  balance  sheet as either an asset or liability  measured at fair
value and  requires  that  changes in fair value be  recognized  currently  in
earnings unless specific hedge  accounting  criteria are met. Hedge accounting
treatment  allows  unrealized  gains  and  losses  to  be  deferred  in  other
comprehensive  income (for the effective portion of the hedge) until such time
as the forecasted  transaction  occurs,  and requires that a company  formally
document,  designate,  and assess the effectiveness of derivative  instruments
that receive hedge  accounting  treatment.  Under  Canadian  GAAP,  derivative
instruments  that  meet  these  specific  hedge  accounting  criteria  are not
recorded on the consolidated balance sheet. In addition,  unrealized gains and
losses on effective hedges are not recorded in the financial  statements.  The
Trust  formally  documented  and  designated  all  hedging  relationships  and
verified that its hedging  instruments were effective in offsetting changes in
actual  prices  and  rates  received  by the  Trust.  Hedge  effectiveness  is
monitored and any ineffectiveness is reported in the consolidated statement of
income.

A reconciliation of the components of accumulated other  comprehensive  income
related to all derivative positions is as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
                                                              2005                 2004
------------------------------------------------------------------------------------------------
                                                         GROSS  AFTER TAX      Gross  After Tax
------------------------------------------------------------------------------------------------
<S>                                                    <C>        <C>        <C>        <C>
Accumulated other comprehensive (loss) income,
   beginning of year                                   $(3,643)   $(2,395)   $    78    $    46
Effect of change in corporate tax rate                      --         --         --         (5)
Reclassification of net realized gains into earnings      (799)      (529)      (969)      (637)
Net change in fair value of derivative instruments       3,223      2,122     (2,752)    (1,799)
------------------------------------------------------------------------------------------------

Accumulated other comprehensive loss,
   end of year                                         $(1,219)   $  (802)   $(3,643)   $(2,395)
------------------------------------------------------------------------------------------------
</TABLE>


(d)  Under  US  GAAP,  as  the  units  are  redeemable  at the  option  of the
unitholder,  the units must be valued at their redemption amount and presented
as temporary equity in the consolidated balance sheet. The redemption value of
the units is determined with respect to the trading value of the units and the
unit equivalent of the  exchangeable  shares at each balance sheet date. Under
Canadian GAAP, all units are  classified as permanent  equity.  As at December
31, 2005 and 2004,  the Trust has  classified  $5.1 billion and $3.4  billion,
respectively,  as  temporary  equity in  accordance  with US GAAP.  Changes in
redemption  value  between  periods are  charged or  credited  to  accumulated
earnings.

(e)  Under  Canadian  GAAP,   ARL   Exchangeable   Shares  are  classified  as
non-controlling interest to reflect a minority ownership in one of the Trust's
subsidiaries.  As these exchangeable  shares must ultimately be converted into
units, the  exchangeable  shares are classified as temporary equity along with
the units for US GAAP purposes.

(f) Under Canadian GAAP,  basic net income per unit is calculated based on net
income after  non-controlling  interest  divided by weighted average units and
diluted  net  income  per  unit  is  calculated  based  on net  income  before
non-controlling  interest  divided by dilutive  units.  Under US GAAP,  as the
exchangeable  shares are  classified  in the same  manner as the units with no
non-controlling  interest  treatment,  basic net income per unit is calculated
based on net income divided by weighted  average units and the unit equivalent
of the outstanding exchangeable shares.  Concurrently,  diluted net income per
unit is  calculated  based  on net  income  divided  by a sum of the  weighted

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average units, the unit equivalent of the outstanding exchangeable shares, and
the dilutive impact of rights.

(g) In 2005 and 2004, the FASB and the CICA issued new and revised  standards,
all of which were  assessed by  management  to be not  applicable to the Trust
with the exception of the following:

  o In December 2004, the FASB Issued SFAS No. 123R,  "Share Based  Payments",
    which addresses the issue of measuring  compensation  cost associated with
    Share Based Payment plans.  This  statement  requires that all such plans,
    for public  entities,  be measured  at fair value using an option  pricing
    model whereas  previously  certain plans could be measured  using either a
    fair value method or an intrinsic  value method.  The revision is intended
    to increase the consistency and comparability of financial results by only
    allowing one method of  application.  This  revised  standard is effective
    fiscal  year  2006.  The Trust will adopt SFAS 123R on January 1, 2006 and
    will determine the impact in 2006.

  o In 2004,  FASB issued FAS 153  "Exchange  of  Non-monetary  Assets".  This
    statement  is  an  amendment  of  APB  Opinion  No.  29  "Accounting   for
    Non-monetary  Transactions".  Based on the guidance in APB Opinion No. 29,
    exchanges  of  non-monetary  assets are to be  measured  based on the fair
    value of the assets exchanged.  Furthermore, APB Opinion No. 29 previously
    allowed  for  certain  exceptions  to this fair value  principle.  FAS 153
    eliminates APB Opinion No. 29's  exception to fair value for  non-monetary
    exchanges of similar  productive  assets and replaces  this with a general
    exception  for  exchanges  of  non-monetary   assets  which  do  not  have
    commercial  substance.  For purposes of this  statement,  a non-  monetary
    exchange is defined as having  commercial  substance  when the future cash
    flows of an entity are expected to change significantly as a result of the
    exchange.  The provisions of this statement are effective for non-monetary
    asset  exchanges  which occur in fiscal periods  beginning  after June 15,
    2005 and are to be applied prospectively. Earlier application is permitted
    for non-monetary  asset exchanges which occur in fiscal periods  beginning
    after the issue date of this statement. Currently, this statement does not
    have an impact on the Trust;  however,  this may result in a future impact
    to the Trust if it enters into any non-monetary asset exchanges.

  o In  May  2005,  FASB  issued  FAS  154,   "Accounting   Changes  in  Error
    Corrections",   changes  the  requirements  for  the  accounting  for  and
    reporting of a change in accounting  principle.  The standard is effective
    for the Trust in fiscal 2006.

  o In January 2005, the CICA approved  Handbook Section 1530,  "Comprehensive
    Income".  The new standard is intended to harmonize  Canadian GAAP with US
    GAAP.  The new standard is effective for the Trust in the first quarter of
    2007.